1. Free Enterprise  Another name for capitalism, an economic system based on private ownership of productive resources  Open opportunity: ability of everyone to take part in the market by free choice  Legal equality: situation in which everyone has the same economic rights under the law  Free contract: situation in which people decide which legal agreements to enter into.  Profit motive: the force that encourages people & organizations to improve their material well being from economic activities

2. Examples of Free Enterprise  Pet Rock  Borders, Barnes & Noble, Amazon.com

3. Milton Friedman  Economist – “Chicago School of Economics”  Belief that the market should be free to operate in all fields, even in professions such as law & medicine  Easing government restrictions in these fields (e.g., lowering licensing standards) would bring more doctors and lawyers into the market, thereby bringing down the cost of legal & medical services

4. Milton Friedman  Put forward theory that government’s most important economic role was to control the amount of money in circulation. Without this control of the money supply, the economy would experience inflation (sustained rise in the general level of prices)

5. Role of Producers & Consumers  Producers are looking to earn the most profit (money left over after the costs of producing a good or service have been subtracted from the revenue gained by selling that good or service)  Consumers seek to get the best deal for the money they spend.  Consumers “vote “with their wallets. These votes determine what will be produced in the future.

6. Providing Public Goods  In the American economic system, most production decisions are made in the marketplace through the interactions of buyers and sellers. This is the free enterprise sector of our economy.  The public sector of our economy is based on the decisions made by government  Market failure occurs when people who are not part of a marketplace interaction benefit from it or pay part of its costs  Government sometimes provides a good or service when market failure occurs

7. Public Good  Products that are provided by federal, state, and local governments and consumed by the public as a group.  2 characteristics 1. People can’t be excluded from the benefits of the product even though they don’t pay for it. 2. One person’s use of the product doesn’t reduce its usefulness to others.  Examples: national defense, street lighting

8. Meet the Packers Reasons to be a Packer Fan: The team is owned by 100,000 fans The “Lambeau Leap” after a Packer scores a touchdown the player leaps into the stands. Team and fans become one. "Ya did good! Now jump up here and lemme give ya a hug!" Several years back a guy in a small- plane crash was spared serious injury because he was wearing a Cheesehead. Try that with a set of Viking antlers.

9. Free Riders  Person who chooses not to pay for a good or service but who benefits from it when it is provided  One way to address free rider problem is for government to provide certain goods and services  Examples: fireworks stand, law enforcement

10. Externalities  side effect of a transaction that affects someone other than the producer or buyer  Negative externality: negative effect, or cost, for people who were not involved in the original economic activity  e.g., pollution from factory  Positive externality: positive effect, or benefit, for people who were not involved in the original economic system;  e.g. your neighbors plant a beautiful garden – all the surrounding homes benefit

11. Externalities  The building of a new dam and creation of a lake generates:  Positive Externalities  A possible source of hydroelectric power  Swimming  Boating  Fishing  Lakefront views  Negative Externalities  Loss of wildlife habitat due to flooding  Disruption of fish migration along the river  Overcrowding due to tourism  Noise from racing boats and other watercraft

12. Public Transfer Payments  Safety Net: government programs designed to protect people from economic hardships  Transfer payments: transfer of income from one person or group to another even though the receiver does not provide any goods or services in return; e.g. cash from relatives; receives provides nothing in return for payment  Public Transfer Payment: government transfers income from taxpayers to recipients who don’t provide anything in return  Characteristic of command economy  Usually is social spending – social security, medicare, veteran’s benefits, food stamps, welfare